BEE2038: Intermediate Micro; introduction and ‘models’

Planned syllabus, coverage: see web book ‘handout’

Lecture 1 “intro” coverage (1 hour)

Key goals of this lecture (and accompanying self-study)…

  1. Get excited
  1. What’s this module’s purpose and story arc? How to get the most out of it.
  1. What’s Microeconomics? Why is it useful? Why use ‘models’? Some applications of models
  1. Recap microeconomics examples, get econ brain flowing

About Me

Dr. David Reinstein, davidreinstein.wordpress.com

Office hours: Tuesday and Thursday 11am-noon during Spring term (just come by); Streatham Court 1.39 unless otherwise mentioned. or by appointment calendly.com/daaronr/20min/.

  • My research interests

  • My teaching and projects

This module: BEE2038: Intermediate Microeconomics (Applied)

A farm-to-table artisinal more-ish curation of … Microeconomics: essentials, tools, and applications to business, policy, and life.

  • For ‘not straight Econ students’: a broad church; I’m sympathetic

  • Maths?

  • Yep, some

Lectures: 2x per week, interactive, won’t cover everything. Self-study required (see web-book etc.)


Readings and coverage: see Web-book (aka handout). The HANDOUT is king.

  • Roughly 8 problem sets– about 1/week on each chunk of material; (unassessed); questions come from exams or build exam skills

  • Support classes/tutorials about each fortnight, covering key material from recent problem sets

  • Extensive additional material (formative assesments, mock exams, tutorial videos, forums etc) to help you prepare for asessment, and for your interest

Marks

  • ‘Midterm’ examination (Asking for week 6/7), multiple choice; 30 marks

  • Final examination, 120 minutes, MCQ, solved problems, short essays: 70 marks


\(\leftarrow\)


\(\leftarrow\) Five competencies…

Five essential competencies of an Economist (Algood and Bayer, 2017)

1. Apply the scientific process to economic phenomena

  1. Analyse and evaluate behaviors and outcomes using economic concepts and models

3. Use quantitative approaches in Economics

4. Think critically about economic methods and their applications

  1. Communicate economic ideas in diverse collaborations

Skills demanded by employers

Text(s)

Recommended: “Intermediate Microeconomics and Its Application” (11-12th ed. preferred; recent OK); £50 Waterstones, also at the library; get access


Note: Handout explains the coverage; not always sequential! And some material is in the handout only (clearly stated).


Lots of other free online texts, resources, esp.:

The story of this module

1. Economic basics (weeks 1-2)

  • Economic models, maths tools, introduction (NS ch. 1)

  • Utility, preferences, indifference curves, budget constraints (NS 2)

we build it up and then burn it down…

2. Build the model, put it together, examine it (weeks 3-5)

The Demand side:

Demand curves: Individual and market demand (NS ch. 3)


The supply side:

(Abbreviated: Production, costs, returns to scale, choice of inputs)

Profit maximisation and supply, perfect competition in a single market

Supply curves, entry/exit, Consumer and Producer Surplus, general equilibrium and welfare (brief)

3. How the market can go wrong (and how to maybe fix it) (weeks 6-7)

  • Market failures – Public goods

  • Monopolies; price discrimination as an imperfect remedy

4. Extensions to the model and applications (weeks 8-11)

  • Uncertainty (basic concepts, EU, risk aversion, investment choices)

  • Game theory; experimental evidence

  • ‘Behavioural’: Limits to cognition, willpower, self-interest; applications and evidence

The big (small) question


What’s gonna be on the exam??


  • Everything


  • I reward broad understanding; ‘can YOU explain it?’

Examples of exam material:

  • Practice problems in lectures and at the end

  • Problem sets, mock and sample question on the VLE

  • Previous exams (esp since 2015-16)

    • With suggested answers, explanations, and ‘common mistakes’

Real big question: why are you here?

\(\leftarrow\)

Haha

Why are you here (in this lecture theatre)?

To learn.

  • Because you think it’s interesting

    • to ponder big questions about individuals, markets, society

    • to understand how people have tried to bring order to difficult questions

    • because you want to contribute something to the world

  • Because this stuff is actually useful in the real world

    • For your professional and/or academic career

    • For your life

But anything I say you can find online, or in a book, so why are you here?

To interact


Not to hear what the lecturer has to say, but for the lecturer to respond to what you say.

Resources

The VLE and other resources

  • Practice questions and formative assessments

The ‘HANDOUT’ file/web-book

For now, available to you exclusively on the VLE


Contains all the lecture slide material and more, html links, etc.

  • As we progress…
    • Read the introduction: Key information to understand how it works (abbreviations etc)
    • Leave comments/question directly on file via hypothes.is; it will be a conversation!


The future is here!
(Made with r-markdown and bookdown)

Possible in-lecture interaction

  • Responseware, questions, polls and ‘chat’; ‘Kahoot’

  • In-lecture experiments and games

  • Ask me questions, especially at beginning and end

    • Raise a white handkerchief if you are lost
  • Draw-along and solve-along

Heavies

Economists do not know everything (but we have thought through many arguments)}

Most non-economists do not fully understand these arguments, and they make mistakes, and they worry.

  • But sometimes ignorance is bliss.
  • … more deep truths to follow, enough for now

A BIG THEME

Markets work well but not perfectly.

Imperfections in existing markets \(\rightarrow\) opportunities.

Imperfection: Inefficient markups for information goods with per-unit pricing

  • \(\rightarrow\) ‘All you can eat’ \(\rightarrow\) Spotify, Netflix, Kindle Unlimited

Imperfection: Lack of information about ‘experience goods’, lack of trust in one-shot-interactions


\(\rightarrow\) ??

\(\rightarrow\) ??

\(\rightarrow\) Uber, AirBnb, ‘bilateral reputation systems’

Shyness and fear of ‘losing face’

  • \(\rightarrow\) Tinder, Squad, etc.

Ties in to my research …

Economics and Economic Models (See esp. NS1)


What is Economics?


‘Economics is the study of the allocation of scarce resources among alternative uses.’


‘Economics is the study of mankind in the ordinary business of life.’ Alfred Marshall

What is Microeconomics?


The study of the (economic) choices individuals and firms make and how these choices create markets.



  • Largely, using theoretical and mathematical ‘models’ that depend on strong assumptions.
Models are general, and can be applied to many contexts; deep meanings
Humans are not like billiard balls, universal rules are hard to come by

So why learn these models?

The tortoise and the hare

Can hares really speak? Is this a rabbit or a hare? What other animals were racing?

What do models give us?


There are different views of this


Assumptions \(\rightarrow\) Results

and sometimes \(\rightarrow\) testable predictions (if the assumptions hold)


So why learn these models?

  • A starting point

  • (Sometimes) make testable concrete predictions

  • Building insight, clear arguments, a way of thinking

  • Discussion is framed around them; seen as a ‘baseline’

  • Understand to be able to critique/extend

Example: The PPF (with certain properties)

The PPF: a ‘model’ and a way of seeing things

  • Principle 1: Scarce Resources

  • Principle 2: Scarcity involves opportunity cost.

Above PPF: opportunity cost of more clothing is less food.

Principle 3: Opportunity costs are (often) increasing

  • ‘Law’ of diminishing marginal returns

What’s going on?

Application 1.1: Economics in the Natural world

buzbee

buzbee

Studies of honeybees have found that they generally do not gather all of the nectar in a particular flower before moving on.

Why not?

Antaphid

Is It Worth Your Time to Be Here?

Application 1.2 in NS text. Handout: some articles discussing this. Read at home, discuss

<center>Most prominent cynic: Bryan Caplan</center>

Most prominent cynic: Bryan Caplan

\(\leftarrow\)

  • Consider the same for the UK/Exeter; give your best estimate


  • How does the analysis differ from the one your uncle would do?

Rise and Fall of Blockbuster

Application 1.3 in NS text - (read at home, discuss)

Critical contemporary business challenges

Long standing question …

Hey, ma and pa, what determines the price of a bread and the amount that gets sold?

Basic Supply-Demand Model

Handout says: you can skip historical background, go straight to Marshall’s model

… Describes how a good’s price and the quantity exchanged are determined

  • Determined by the preferences/behaviour/costs of potential buyers and sellers

I want you to be able to answer…

Marshall’s Model of Supply and Demand:


  • Why ‘demand curves slope down’?
  • Why ‘Just like neither scis cuts alone, neither the supply nor the demand curve determines the equilibrium price and quantity in isolation’?


More challenging questions: see handout

To respect yourself in the morning, know

  • Which factors cause the supply and demand curves to shift?

  • What causes ‘movements along’ the supply or demand curve?

Do US, EU, & Japanese farm subsidies help or hurt Africans in net?

  • See NS APPLICATION 1.4: Economics According to Bono, discussion and references in handout

  • Consider the effects on African farmers and African producers. How could we consider the ‘net effect’?

How Economists ‘Verify’ (or Assess) Theoretical Models

Read about this…

Testing assumptions vs testing predictions

Positive and normative statements

Read about this

Review (revision) questions and problems from NS Chapter 1 and on ‘models’

(See ‘problem set’ to be linked in handout shortly – I’ll announce it)…

Discussion question 6 from NS

Gasoline sells for $4.00 per gallon this year, and it sold for $3.00 per gallon last year. But consumers bought more gasoline this year than they did last year. This is clear proof that the economic theory that people buy less when the price rises is incorrect.

Do you agree? Explain.

2018 Midterm question (slightly changed)

2018 Midterm question - again, slightly adjusted

Next lecture:

  • Math tools (some of these, will cover others ‘as we go’)

  • Empirical analysis

  • Introduction to Utility and choice (Time-permitting)